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					BUDGETS AND MONTHLY FINANCIAL REPORTS
What is it?
Budgets, cash flow forecasts and monthly financial reports are used to plan and monitor the financial position of the organisation. These important financial tools can be prepared manually or much more commonly are prepared through a computer software package. However, regardless of how they are prepared, the principles to consider when preparing them are the same.

Budgets
A budget is a way of thinking ahead financially. It predicts the expenses you expect to incur and the income you plan to bring in. Budgeting is simply the process of planning your organisation’s finances for a specific period, usually 12 months. It is intended to minimise the risk of being faced with nasty surprises and to provide a baseline for financing your service activities. Tips for the development of a budget:           It's important that the process of preparing the organisation's budget involves everybody who's going to be affected by it. Make sure that the program staff works closely with the administrative staff and the Manager right from the beginning of the budget cycle. Begin by reviewing your previous year's budget in comparison with your actual results in that year as per your financial statements. What can you learn from how your estimates for last year's operations went? Did your running costs drift up? Did you have any surprise costs that you hadn’t budgeted in the previous year? Check your strategic plan and business plan against the reality of your budget. Did the budget allow you to achieve your objectives comfortably? Was there scope for savings? Are there any changes that could have reduced costs? Now look at this year's plans. Do they include any new activities that you expect will result in increased costs? Go over each item. What was it last year? Have there been any external changes that would alter this - new tax laws, rising prices, changed practices?

Governance and Accountability – Financial Management – Budgets and Monthly Financial Reports Topic Guide

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Laying out the budget
In designing your budget framework, you need to ask: 1. What are the things you spend your money on? (Expenditure) The standard major expenditure items are: Salaries, equipment, rent, electricity/gas, telephone, stationery, photocopying/printing, insurance, advertising, travel, sundries (anything that doesn't fit under the other headings). Put in separate line items where they represent significant sums. 2. How do you bring money into the organisation? (Income) The standard major income items are: Grants, donations, charges for services, and memberships. Add your own special categories to these. A surplus or deficit represents the difference between projected income and expenditure. If the income is greater than the expenditure for a given period, the difference is a surplus. If the expenditure is greater than the income for that period, the difference is a deficit.

Example of a budget build-up
Income Grants Membership subscriptions Interest on investments Sales Donations Fundraising Subtotal Income Expenditure Salaries and wages Rent Client support services Telephone Computer expenses Postage Subtotal Expenditure Projected surplus (deficit) Last year This year Next year (budget)

You can have one budget for the whole organisation, with headings like the ones given above, or you can have separate budgets for each section or each project and a combined budget to sum them up. Combined budgets are simpler to run, but you can overlook trouble developing in a particular area if the actual financial results are spread across the whole organisation.
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Cash flow forecasts
Cash flow forecasts help you plan the likely timing of your receipts and payments over the year. Once this information is projected, you will then be able to compare your actual receipts and payments with these forecasts and it will help you to ensure you have enough money to pay the bills. These bills include the day-to-day running expenses, such as salaries and superannuation, as well as large sums predicted and planned for in your annual budget. A cash flow forecast usually has the following characteristics:    It is a picture of your predicted flow of funds for a particular period, usually month by month for the year ahead. It allows you to predict what cash you think will come in and go out, as well as the timing of those receipts and payments. It is an extension of your budget and you should prepare it as soon as your budget for the year has been finalised and approved.

The easiest way to develop a cash flow forecast is to start with previous budgets and actual cash receipts and payments as per your cash books. Your cash flow forecast must also include estimated bank balances for easy comparison with your actual bank balances. The closing balance for each period is the opening balance for the next period. Common elements of a cash-flow forecast are:   Cash in – grants, sale of goods and services, subscriptions, return on investments, donations, fund raising activities, sale of assets and tax refunds. Cash out – operating activities, such as staff salaries and on-costs, telephone bills, power bills, rental, travel, stationery, printing and copying, postage, tax, equipment and special project costs.

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Example of a month by month cash flow forecast
Estimated income Total budget January Grants Membership subscriptions Interest on investments Sales Donations Fundraising Total income Estimated expenses Salaries and wages Rent Client support services Telephone Computer expenses Postage Total expenses Surplus/(Deficit) Opening balance (Bank a/c) Closing balance (Bank a/c) 120,000 1,000 1,000 5,000 1,000 1,000 129,000 96,000 12,000 11,000 4,000 3,000 2,500 128,500 500 12,500 13,000 30,000 100 500 30,600 8,000 1,000 1,200 200 500 200 11,100 29,500 13,000 42,500 Month February 200 100 200 100 600 8,000 1,000 2,000 300 200 150 11,650 (11,050) 42,500 31,450 March December 200 100 300 100 700 8,000 1,000 1,000 400 500 300 11,200 (10,500) 31,450 20,950

Financial reports
The Treasurer of the organisation should present the monthly financial reports to the Management Committee each month. It is good practice to provide these reports to at least the President/Chairperson prior to the meeting to allow him or her to read and understand them before they are presented to the rest of the Committee. The report provides a snapshot of the organisation’s actual financial position in comparison to what was budgeted at that particular point in time. The Treasurer needs to highlight any significant matters (variances or differences between actual and budget) to draw the Management Committee’s attention to these issues. The financial report should include the budgeted and actual income and expenditure for the particular month and any variances between the actual and budgeted figures. You may wish to indicate with the letter “u” if the variance is unfavourable or “f” if the variance is favourable. Although the financial reports are usually combined for the whole service/organisation, in some cases the organisation may wish to present separate reports for specific program areas funded from different funding bodies. Following is an example of a monthly financial report.

Governance and Accountability – Financial Management – Budgets and Monthly Financial Reports Topic Guide

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Financial Report for Month Ending
Budget for year Income Grants Membership subscriptions Interest on investments Sales Donations Fundraising Subtotal income Expenditure Salaries and wages Rent Client support services Telephone Computer expenses Postage Subtotal Expenditure Surplus/(Deficit) This month Actual Budget Actual Year to date Budget Variance

Related documents
Budget Cash Flow Forecast Monthly Financial Report

Governance and Accountability – Financial Management – Budgets and Monthly Financial Reports Topic Guide

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